Market price of the put is greater than the synthetic put

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Reference no: EM131595827

Suppose that you are comparing put and call prices on the same underlying stock and the strike prices and time-to-expiration of the two options match. Further suppose that there are no dividends expected for the coming year on the stock and the options are all European. If the put-call parity shows that the market price of the put is greater than the synthetic put, you could have an arbitrage profit if you:

buy the put , buy the call, sell stock, sell a bond

buy the stock, buy the bond, write the put, write the call

buy a put, buy stock, write the call, sell bond

no arbitrage is available for these asset prices

buy the call, buy a bond, write the put, sell stock

Reference no: EM131595827

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